This document provides an overview of key concepts related to interest rates and bond valuation. It discusses important bond features, how bond values fluctuate with interest rates, bond ratings, and types of bonds. The chapter outline covers bonds and valuation, bond features, ratings, bond types, bond markets, inflation and interest rates, and determinants of bond yields. Worked examples are provided to illustrate bond pricing and calculating yield to maturity. The differences between debt and equity are also summarized.
This chapter discusses interest rates and bond valuation. It defines important bond features such as par value, coupon, coupon rate, and maturity date. It explains how bond values and yields are calculated and why they fluctuate. The chapter also describes bond ratings and their meaning, and the impact of inflation on interest rates. Finally, it illustrates the term structure of interest rates and the determinants of bond yields.
This chapter discusses bond valuation and the factors that impact bond prices and yields. It defines important bond features such as coupon rate, par value, and maturity date. It explains how bond values are determined using the present value of cash flows and how bond prices move inversely with changes in interest rates. The chapter also covers bond types, markets, ratings, and the term structure of interest rates. It analyzes how inflation, taxes, and risk premiums impact bond yields.
Lecture6.ppt financial information about interest rate and bond valuationHamzaKhan322702
This document outlines key concepts related to bond valuation and interest rates. It discusses how bond prices are determined using present value of cash flows and how bond prices move inversely with interest rates. Specific topics covered include bond definitions, valuing bonds with annual and semiannual coupons, yield-to-maturity, factors affecting bond yields such as inflation, the Fisher effect relationship between real and nominal rates, and the normal upward and sometimes inverted downward sloping of the term structure of interest rates.
This document outlines key concepts related to bond valuation and interest rates. It discusses how bond prices are determined using present value of cash flows and how bond prices move inversely with interest rates. Specific topics covered include bond definitions, valuing bonds with annual and semiannual coupons, yield-to-maturity, factors affecting bond yields such as inflation, the Fisher effect relationship between real and nominal rates, and the normal upward and sometimes inverted downward sloping of the term structure of interest rates.
This document provides an overview of key concepts related to bond valuation including:
1) Bond valuation involves calculating the present value of future cash flows from coupons and principal. Bond prices fluctuate as interest rates change.
2) Bond ratings indicate credit quality and impact required returns, with higher-rated bonds having lower yields.
3) Inflation and expected inflation impact nominal interest rates through the Fisher effect.
This document provides an overview of key concepts related to bond valuation including:
1) Bond features such as par value, coupon rate, and maturity date affect bond prices and how they are impacted by changes in interest rates.
2) Bond ratings indicate the risk of default and impact required returns, with higher-rated bonds having lower yields.
3) Inflation and expectations of future inflation are built into nominal interest rates through the Fisher effect.
This chapter discusses bond valuation and investment strategies. It covers how to calculate the value of a bond using present value calculations. It also discusses yield calculations, interest rate risk measured by duration and convexity, and the characteristics of different types of bonds. The chapter concludes with various bond investment strategies such as laddering bonds of different maturities or using a barbell approach of both short and long term bonds.
Interest Rates and Bond Evaluation by Junaid ChohanJunaid Ashraf
This chapter discusses interest rates and bond valuation. It covers key bond concepts such as bond features, types, and valuation. Bond values fluctuate due to changing interest rates, as higher rates lower bond prices. Bond ratings indicate credit risk, with higher-rated bonds having lower yields. Inflation impacts nominal interest rates through the Fisher effect. The term structure of interest rates refers to the relationship between maturity and yields, with the yield curve normally upward sloping. Required bond returns depend on characteristics like risk, tax treatment, liquidity, and call provisions.
This chapter discusses interest rates and bond valuation. It defines important bond features such as par value, coupon, coupon rate, and maturity date. It explains how bond values and yields are calculated and why they fluctuate. The chapter also describes bond ratings and their meaning, and the impact of inflation on interest rates. Finally, it illustrates the term structure of interest rates and the determinants of bond yields.
This chapter discusses bond valuation and the factors that impact bond prices and yields. It defines important bond features such as coupon rate, par value, and maturity date. It explains how bond values are determined using the present value of cash flows and how bond prices move inversely with changes in interest rates. The chapter also covers bond types, markets, ratings, and the term structure of interest rates. It analyzes how inflation, taxes, and risk premiums impact bond yields.
Lecture6.ppt financial information about interest rate and bond valuationHamzaKhan322702
This document outlines key concepts related to bond valuation and interest rates. It discusses how bond prices are determined using present value of cash flows and how bond prices move inversely with interest rates. Specific topics covered include bond definitions, valuing bonds with annual and semiannual coupons, yield-to-maturity, factors affecting bond yields such as inflation, the Fisher effect relationship between real and nominal rates, and the normal upward and sometimes inverted downward sloping of the term structure of interest rates.
This document outlines key concepts related to bond valuation and interest rates. It discusses how bond prices are determined using present value of cash flows and how bond prices move inversely with interest rates. Specific topics covered include bond definitions, valuing bonds with annual and semiannual coupons, yield-to-maturity, factors affecting bond yields such as inflation, the Fisher effect relationship between real and nominal rates, and the normal upward and sometimes inverted downward sloping of the term structure of interest rates.
This document provides an overview of key concepts related to bond valuation including:
1) Bond valuation involves calculating the present value of future cash flows from coupons and principal. Bond prices fluctuate as interest rates change.
2) Bond ratings indicate credit quality and impact required returns, with higher-rated bonds having lower yields.
3) Inflation and expected inflation impact nominal interest rates through the Fisher effect.
This document provides an overview of key concepts related to bond valuation including:
1) Bond features such as par value, coupon rate, and maturity date affect bond prices and how they are impacted by changes in interest rates.
2) Bond ratings indicate the risk of default and impact required returns, with higher-rated bonds having lower yields.
3) Inflation and expectations of future inflation are built into nominal interest rates through the Fisher effect.
This chapter discusses bond valuation and investment strategies. It covers how to calculate the value of a bond using present value calculations. It also discusses yield calculations, interest rate risk measured by duration and convexity, and the characteristics of different types of bonds. The chapter concludes with various bond investment strategies such as laddering bonds of different maturities or using a barbell approach of both short and long term bonds.
Interest Rates and Bond Evaluation by Junaid ChohanJunaid Ashraf
This chapter discusses interest rates and bond valuation. It covers key bond concepts such as bond features, types, and valuation. Bond values fluctuate due to changing interest rates, as higher rates lower bond prices. Bond ratings indicate credit risk, with higher-rated bonds having lower yields. Inflation impacts nominal interest rates through the Fisher effect. The term structure of interest rates refers to the relationship between maturity and yields, with the yield curve normally upward sloping. Required bond returns depend on characteristics like risk, tax treatment, liquidity, and call provisions.
This document discusses asset-liability management (ALM) and interest rate risk management techniques used by financial institutions. It covers topics such as interest rate measurement, yield curves, gap management, and duration analysis. ALM aims to coordinate asset and liability decisions to manage risks and maintain profitability. Interest rate risk arises from changes in market rates that impact asset and liability values and income. Techniques like gap analysis and duration matching seek to balance repricing risks from assets and liabilities.
This chapter discusses interest rates and how they are measured. It defines key terms like present value, yield to maturity, and return. Yield to maturity is identified as the most accurate interest rate measure. The chapter then examines how to calculate yield to maturity for different financial instruments like simple loans, fixed payment loans, coupon bonds, and discount bonds using present value equations. It distinguishes between interest rates, current yield, and total return, showing how returns are impacted by changes in interest rates depending on how long a bond is held.
Chapter 6Interest Rates and Bond ValuationSLO Synthesize JinElias52
This document provides an overview of Chapter 6 from a finance textbook. It covers key concepts related to interest rates and bond valuation, including defining important bond features, discussing how bond values fluctuate based on interest rates, explaining bond ratings, and evaluating the impact of inflation on interest rates. The chapter outline lists topics like bond types, bond markets, and determinants of bond yields. Worked examples are provided for pricing bonds and calculating yield to maturity.
This document discusses bond valuation and investment strategies. It begins by defining bonds and their key characteristics. It then covers topics like calculating bond prices, yields, interest rate risk and duration. Other sections explain callable bonds, bond pricing factors like convexity, and convertible bonds. The document concludes by discussing bond portfolio strategies such as laddering bonds and using a barbell approach.
This is the fourth presentation for the University of New England Graduate School of Business unit, GSB711 - Managerial Finance. This presentation looks at returns on different types of investment.
This document discusses bond valuation and bond markets. It begins by defining different types of bonds such as coupon bonds, zero-coupon bonds, and inflation-linked bonds. It then covers topics such as bond valuation using discounted cash flows, yield to maturity, bond prices and interest rates, bond ratings, and the term structure of interest rates. The document also briefly discusses government bonds, corporate bonds, and bond markets.
Fixed Income Securities Yield Measures.pptxanurag202001
Sources of Return
Yield Measures for Fixed-Rate Bonds
Yield to Call
Yield to Put
Yield to Worst
Cash Flow Yield
Yield Measures for Floating Rate Notes
Yield Measures for Money Market Instruments
Theoretical Spot rates (Bootstrapping)
Derivation of Forward Rates
Yield Spreads
Riding the Yield Curve
The document discusses various topics related to bond valuation including:
1) Types of bonds and bond risks.
2) Methods of calculating bond yields like current yield, coupon yield, and yield to maturity.
3) Bond valuation techniques like calculating present value of future cash flows.
4) Factors that impact bond prices like coupon rate, maturity, and yield.
BONDS, FEATURES OF BONDS, BOND VALUATION, MEASURING YIELD, ASSESSING RISK, TYPES OF LONG- TERM DEBT INSTRUMENTS, SERIAL BONDS, TYPES OF RISK, SEMI- ANNUAL BONDS, YIELD TO CALL, YIELD TO MATURITY, DEFAULT RISK & FACTORS AFFECTING DEFAULT RISK & BOND RATINGS, etc.
The valuation of bonds ppt @ bec doms financeBabasab Patil
The document discusses the valuation and characteristics of bonds. It covers the basis of bond valuation using present value of expected cash flows. It also discusses bond terminology like maturity, coupon rate, and yield. Bond valuation considers factors like interest rates, time to maturity, coupon payments, and principal repayment. The price of a bond moves in the opposite direction of interest rates.
Wayne lippman present s bonds and their valuationWayne Lippman
Bonds are simply long-term IOUs that represent claims against a firm’s assets.
Bonds are a form of debt
Bonds are often referred to as fixed-income investments.
Key Features of a Bond
Debt instrument issued by a corp. or government.
Par value = face amount of the bond, which is paid at maturity (assume $1,000).
Coupon rate – stated interest rate (generally fixed) paid by the issuer. Multiply by par to get dollar payment of interest.
This document discusses bonds and bond pricing. It begins by defining key bond terminology like face value, coupon rate, maturity date, and zero-coupon bonds. It then explains how to calculate the price and yield to maturity of zero-coupon bonds using the present value formula. The document also demonstrates how to calculate the price and yield of coupon bonds, and discusses how bond prices change over time due to movements in interest rates. Finally, it covers how corporate bonds differ from Treasury bonds due to differences in credit risk.
THE ECONOMICS OF MONEY, BANKING, AND FINANCIAL MARKETS.dayang63
This chapter discusses interest rates and how they are measured. It defines key terms like present value, yield to maturity, and real vs nominal interest rates. It explains how to calculate the present value of future cash flows. It also discusses how to calculate the yield to maturity for different financial instruments like simple loans, fixed-payment loans, coupon bonds, and discount bonds. It emphasizes that yield to maturity is the most accurate measure of an interest rate.
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
The document provides an overview of the bond market, including definitions of basic bond terms, types of bonds, bond risk, valuation, and rating. It begins with definitions of key concepts like par value, coupon rate, maturity date, and yield. It describes various types of bonds like treasury bonds, agency bonds, municipal bonds, and corporate bonds. The document also discusses bond risk factors, how bonds are valued using discounted cash flow models, and how credit rating agencies like S&P, Moody's, and Fitch assign ratings to bonds.
The document summarizes key concepts about valuing bonds from Chapter 3 of Brealey, Myers, and Allen's Principles of Corporate Finance textbook. It introduces the present value formula used to value bonds, how bond prices vary with interest rates, the term structure of interest rates, and factors such as inflation, real vs nominal rates, and default risk that influence bond valuation. Various examples are provided to illustrate bond valuation concepts.
Econ315 Money and Banking: Learning Unit #09: Interest Ratesakanor
The document provides information about interest rates, including yield to maturity, rate of return, and real vs nominal interest rates. It discusses:
- Yield to maturity is the interest rate that equates the present value of debt payments to the instrument's current value.
- Rate of return considers the purchase price, sale price, and any payments to calculate return over a period of time for investments sold before maturity.
- Real interest rates adjust nominal rates for inflation to show returns in terms of purchasing power rather than dollar amounts. The Fisher equation defines the relationship between real and nominal rates.
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This document discusses asset-liability management (ALM) and interest rate risk management techniques used by financial institutions. It covers topics such as interest rate measurement, yield curves, gap management, and duration analysis. ALM aims to coordinate asset and liability decisions to manage risks and maintain profitability. Interest rate risk arises from changes in market rates that impact asset and liability values and income. Techniques like gap analysis and duration matching seek to balance repricing risks from assets and liabilities.
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Fixed Income Securities Yield Measures.pptxanurag202001
Sources of Return
Yield Measures for Fixed-Rate Bonds
Yield to Call
Yield to Put
Yield to Worst
Cash Flow Yield
Yield Measures for Floating Rate Notes
Yield Measures for Money Market Instruments
Theoretical Spot rates (Bootstrapping)
Derivation of Forward Rates
Yield Spreads
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The document discusses various topics related to bond valuation including:
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BONDS, FEATURES OF BONDS, BOND VALUATION, MEASURING YIELD, ASSESSING RISK, TYPES OF LONG- TERM DEBT INSTRUMENTS, SERIAL BONDS, TYPES OF RISK, SEMI- ANNUAL BONDS, YIELD TO CALL, YIELD TO MATURITY, DEFAULT RISK & FACTORS AFFECTING DEFAULT RISK & BOND RATINGS, etc.
The valuation of bonds ppt @ bec doms financeBabasab Patil
The document discusses the valuation and characteristics of bonds. It covers the basis of bond valuation using present value of expected cash flows. It also discusses bond terminology like maturity, coupon rate, and yield. Bond valuation considers factors like interest rates, time to maturity, coupon payments, and principal repayment. The price of a bond moves in the opposite direction of interest rates.
Wayne lippman present s bonds and their valuationWayne Lippman
Bonds are simply long-term IOUs that represent claims against a firm’s assets.
Bonds are a form of debt
Bonds are often referred to as fixed-income investments.
Key Features of a Bond
Debt instrument issued by a corp. or government.
Par value = face amount of the bond, which is paid at maturity (assume $1,000).
Coupon rate – stated interest rate (generally fixed) paid by the issuer. Multiply by par to get dollar payment of interest.
This document discusses bonds and bond pricing. It begins by defining key bond terminology like face value, coupon rate, maturity date, and zero-coupon bonds. It then explains how to calculate the price and yield to maturity of zero-coupon bonds using the present value formula. The document also demonstrates how to calculate the price and yield of coupon bonds, and discusses how bond prices change over time due to movements in interest rates. Finally, it covers how corporate bonds differ from Treasury bonds due to differences in credit risk.
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This chapter discusses interest rates and how they are measured. It defines key terms like present value, yield to maturity, and real vs nominal interest rates. It explains how to calculate the present value of future cash flows. It also discusses how to calculate the yield to maturity for different financial instruments like simple loans, fixed-payment loans, coupon bonds, and discount bonds. It emphasizes that yield to maturity is the most accurate measure of an interest rate.
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The document provides an overview of the bond market, including definitions of basic bond terms, types of bonds, bond risk, valuation, and rating. It begins with definitions of key concepts like par value, coupon rate, maturity date, and yield. It describes various types of bonds like treasury bonds, agency bonds, municipal bonds, and corporate bonds. The document also discusses bond risk factors, how bonds are valued using discounted cash flow models, and how credit rating agencies like S&P, Moody's, and Fitch assign ratings to bonds.
The document summarizes key concepts about valuing bonds from Chapter 3 of Brealey, Myers, and Allen's Principles of Corporate Finance textbook. It introduces the present value formula used to value bonds, how bond prices vary with interest rates, the term structure of interest rates, and factors such as inflation, real vs nominal rates, and default risk that influence bond valuation. Various examples are provided to illustrate bond valuation concepts.
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- Rate of return considers the purchase price, sale price, and any payments to calculate return over a period of time for investments sold before maturity.
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4. Takeaways
• Bond prices are affected by maturity
• A general interest rate increase will decrease the price of long-term
bonds most
• Yield to maturity is based on face value of the bond and coupon rate
• Key factors affecting interest rates
• Productivity
• Inflation
• Maturity
• Liquidity
• Risk
8. Methods of calculating a bond price
• Common Piece – the discounted face (par) value
• Example: 1000 par value matures in 10 years, annual market rate (Yield to
Maturity) is 8%
• Solution – 1000/(1+.08)^10 = $463.19
• Annuity – coupon value
• Example: coupon rate is 8% paid annually
• Set up spreadsheet with $80 in each period for 10 periods
• Use the annuity formula = 536.81 (C/r)*(1-1/(1+r)^t)
• Sum Common Piece and Annuity Piece = 463.19+536.81 = 1000
• Alternatively, use PV formula =-PV(rate,nper,paymnt,FV)
• =-PV(.08,10,80,1000) = 1000
42. Source of bond information
• FINRA data
• https://finra-
markets.morningstar.com/MarketData/Default.jsp?sdkVersion=2.40.0
• Click on corporate button
• Click on Search
• Click on edit search
• Type in AT&T (corporation) – symbol is T
• Bond Data https://finra-markets.morningstar.com/BondCenter/Default.jsp
• Click on Bonds in Market Data Column
• Click next to Market Activity; click on search; t in issuer name; scroll down and
agree
50. Term structure example
• 1-year T-bill rate is 2%
• 2-year T-note rate is 3%
• Why would anyone invest in a 1-year T-bill?
• Ans: the implicit projection is that a 1-year T-bill, one year from now
will yield about 4%
55. Supposed meaning
• A normal yield curve is upward sloping
• One would suppose that changes in its shape would predict general
economic behavior
• See next chart
61. Warning: False Security
• Mortgage-backed securities defaulted in 2007-2008
• Definition: a bond back by a collection of mortgages
• Rating agencies termed them attractive – high yield, low risk
• Turned out that many were backed by subprime mortgages
• Mortgages had adjustable interest rates
• Government raised the federal funds rate
• Housing prices plummeted; many defaults
• Many bankrupcies